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2020-12-04 Property Tips
Author: Satterley

How to save for a healthy home deposit

Receiving the keys to a new home is a milestone moment, but homebuyers know the real way to unlock a new home is through smart saving.

A home deposit that suits your budget may take months or years to amass. So achieving your savings goal usually takes countless hours of hard work and savings sacrifices.

While you can’t cut corners, there are clever ways to save that will put you in the best possible position to ensure your loan application is approved.

Here, we look at steps savvy savers can take to shape up their home deposits.

Great ways to save

By now you’ve done your homework and have organised a way to save as much as you can. A budget that takes your income and expenses into account, including as much detail as possible, is by far the best way to stick to a savings goal.

But keeping track of expenses is difficult, particularly when you’re busy or going through peak spending times such as birthdays, weddings and Christmas. And it’s easy to lose track of expenses when unforeseen payments such as car repairs or replacing broken appliances pop up.

While you can follow your outgoings with a spreadsheet, you really need to be diligent about remembering to record your expenses. These days, it’s far more efficient to use a smart app that tracks your spending while you’re on the move.

Try You Need A Budget, or YNAB, which has a unique approach to budgeting and expense tracking. It asks users to give a job to every dollar they earn, by either sending it to savings or expenses. It automatically imports expenses from a linked bank account and enables real time access so couples can easily share data.

There’s also WiseList, which helps you track and ultimately cut shopping costs. It makes grocery lists with a price comparison feature so your meal prep is efficient and cheap.

There are an abundance of home loan repayment calculators online, but you can’t go past Moneysmart’s number crunchers when it comes to independent info. The government website has calculators for interest rates, mortgage repayments, borrowing and ways to pay off your loan sooner. Have a play and see what difference a lower interest rate or different payment frequency can make.

The golden rule: The more you can save the better!

Guarantor loans

Breaking into the property market is no easy feat, especially for first home buyers, low income earners or anyone who has been out of the workforce for some time.

For these people, guarantor loans is an option that gives them a leg up in the market and may even speed up the purchase of their property.

It involves asking a person - commonly a parent or other family member - to be the guarantor on your loan. The loan is secured by the home you’re purchasing as well as a portion of the equity in your guarantor’s property.

The pros are you are likely to spend less time saving for a deposit and buy sooner, and depending on the bank you use, you may also dodge Lender’s Mortgage Insurance (LMI) which is normally applicable when you’re borrowing more than 80 per cent of the property’s purchase price.

But the cons are you need to think seriously about the implications of not being able to repay the loan. In this case, the guarantor would be forced to make the loan repayments and also pay back the entire loan amount plus interest. Think about how this may affect your relationship with the guarantor.

Lower deposit amount

You may be aiming for a 20 per cent deposit, but this is a lot of money. Calculated on Australia's median house price of $809,349, it’s a whopping $161,869.

While it’s in your interests to have a big deposit so that you borrow less and reduce your repayments, a 20 per cent deposit is not the mandatory amount needed for a home loan.

There are a raft of lenders who will let you borrow more than 80 per cent of the property’s value.

Some lenders will only ask for a 5 per cent deposit and you may even find some asking for just 2 per cent. It means you can buy a property sooner, funnel your savings straight into your loan and jump into the real estate market before any price rises hit.

Of course, borrowing more than 80 per cent of the property’s value means you’ll have to pay LMI, which protects the bank if you default.

Always seek financial advice from a professional to determine what your best options are!

Grant schemes

You may not have heard of it, but the First Home Loan Deposit Scheme is designed to help first home buyers buy sooner than they ordinarily would. The federal government program does this by providing banks with a guarantee for up to 15 per cent of a property’s value.

It means first home buyers can secure their first mortgage with a deposit of 5 per cent and avoid paying LMI.

Up to 10,000 Australian first home buyers can access the scheme through an approved list of lenders and now, as part of the 2020-21 Federal Budget, the government has opened an additional 10,000 places for the 2020-21 financial year.

Applying for the scheme doesn’t mean you will be automatically accepted. Places are hotly contested and applicants need to meet the scheme’s eligibility criteria, which lenders assess.

Saving for a home deposit can be challenging, but it’s important to remember it’s achievable. And what’s more, there are ways to think outside the square.

By doing your homework on the options you have to get into the property market sooner, you may find you can buy a home in less time than you initially thought.

To get an idea of what you’re looking for in a new home, come and explore a Satterley residential community, where homes are built to suit a wide range of budgets and lifestyles.

Our masterplanned communities, found throughout Western Australia, Victoria and Queensland are developed with an easy lifestyle in mind, so you’ll find them close to public transport links and employment hubs.

Satterley is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances.

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